An international pension fund coalition - co-founded by a UN agency last September - wants to shift at least USD600 billion of other people’s money out of fossil fuels and into renewable energy projects.
But it will do so only if governments establish ‘legal frameworks to protect long-term investors’ and ensure ‘capital reallocation’ is risk-free – that is, underwritten by taxpayers – in perpetuity. Nice work if you can get it.
The United Nations Framework Convention on Climate Change (UNFCCC) was not the only agency excited by the 21st annual Conference of the Parties (COP). Another group ecstatic about the prospect of a ‘low-carbon’ world was the United Nations Environmental Programme (UNEP), the 43-year old brainchild of the late Maurice Strong.
Strong, who passed away at 86, just two days before COP21 began in Paris, was a UNEP founding Executive Director. Achim Steiner, UNEP’s current Under-Secretary General and Executive Director – and a past Director General of the International Union for Conservation of Nature - described him as one of the world's greats, ‘a visionary and a pioneer of global sustainable development’.
Strong would have been pleased with UNEP’s Finance Initiative. Launched in 1991, UNEP FI describes itself as a ‘global partnership with the financial sector’. Its mission: to persuade banks, insurers and fund managers to recognise the ‘impacts of environmental and social considerations on financial performance.’ Over 200 members, have signed an FI Statement of Commitment. Its recent activities, however, arguably go beyond this broad objective into new and more intriguing territory.
In the weird world of environmental politics, the UN sees no conflict of interest in one powerful entity and its agencies being responsible for collecting data, concocting ‘projections’ and ‘storylines’, developing policy while – as we shall see – simultaneously funding and encouraging advocacy groups to pressure governments; in this case to design or modify renewable energy (RE) and carbon pricing regulations in its favour. Why not? Well, the ultimate beneficiaries are humankind and the planet – not just huge ticket-clipping pension funds, some with significant RE sector exposure, and career climate-bureaucrats.
Conflict of interest: A situation that has the potential to undermine an agency’s or person’s impartiality because there is the possibility of a clash between self-interest, professional interest or public interest.
An entity that has procured (allegedly) the ‘best available science’ and claims the power to induce a global Goldilocks climate – one protected by legal immunity under the 1946 Convention on the Privileges and Immunities of the United Nations – surely should be allowed to get on with it?
But consider another context, - say an intelligence agency – where no genuine separation exists between intelligence assessment and policy formulation, or between intelligence collection and assessment. Imagine the kerfuffle if, hypothetically, this agency engaged – or ‘co-partnered’ with – advocacy groups to promote the agency’s worldview about planetary ‘security’.
Consider now the UN’s Portfolio Decarbonisation Initiative. Launched at Secretary-General Ban Ki-moon’s Climate Summit in September 2014, it was co-founded by UNEP FI, the fourth National pension fund of Sweden, AP4, Europe’s largest asset manager Amundi, and CDP, an international not-for-profit organization reportedly holding the ‘largest global collection of corporate environmental data.’
At the beginning of COP21 week-two, the Portfolio Decarbonisation Coalition - also co-founded by UNEP FI with a mission to mobilise ‘financial markets to drive economic decarbonisation’ - issued a media release designed to ‘send a strong signal to world governments gathered in Paris to negotiate a new global treaty on climate change.’
Two of the world’s largest institutional investors, Allianz and ABP, would be joining PDC. If governments were prepared to play their part, the Coalition could decarbonise at least USD600bn of assets-under-management (AUM), six times an earlier target. (Decarbonisation strategies of its 25 members – which include the University of Sydney and Church of Sweden – are in PDC’s first annual report.)
According to Oliver Bäte, Allianz’s CEO, the group’s climate and decarbonisation actions would:
...include the phasing out of coal investments, the use of environmental, social and governance scoring in investment decisions across its portfolio of own investments, and scaling up its investments in renewable energy. Allianz is one of the leading private investors in renewable energy, with more than EUR 2.5 billion committed and plans to at least double these investments.
He stressed that PDC needs “an ambitious and reliable regulatory environment now to live up to our commitment to scaling back our financing of carbon-intensive businesses, and investing in renewables and low-carbon infrastructure. If this is fulfilled, then climate protection will not fail because of a lack of funding.” (my italics)
There was a ‘cautionary note regarding forward-looking statements’ as the end of the PDC media release.
The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Etc. (my italics)
But there was no mention that changes in outlook could arise due, say, to a decline in scientific ‘consensus’ about climate theory; the continuing lack of empirical validation for climate-model ‘predictions’; doubts about public statements claiming quantifiable links between atmospheric carbon dioxide, anthropogenic greenhouse gas emissions and future global temperatures; more revelations about the accuracy of agency data collection over time, and so on.
Whether by accident or design, only a handful attended the PDC’s 25-minute media conference (video here.) But Fred Pearce, a freelance journalist reporting for Yale Environment 360, Joel Penrick of Green TV – producer of this 56-second classic, What is climate change denial?, and Miranda Johnson of The Economist were there. Nick Nuttall, UNFCCC’s Head of Communications, was the moderator.
Miranda Johnson asked: “How do you balance fiduciary duties against a low-carbon portfolio, and in transitioning to an increasing low-carbon portfolio?” (14.4min.)
Fiduciary duties: the duties of loyalty and care. Pet owners have FDs. So do managers of other people’s money. For them, there is an eleventh and twelfth commandment: “Thou shalt not be casual about due diligence. Thou shalt consider all the actual or potential risks involved in an investment opportunity.”
Oliver Bäte: “FD is not the real issue (24min.) The real issue in Allianz’s mind is often the legal frameworks for investing in RE infrastructure that are spanning decades – so you need to commit money for several decades – are not properly protecting long-term investors.”
“We are very often at the mercy of the public mainstream [voters] and courts that in hindsight declare some of these contracts invalid and therefore make it very difficult for long-term investors to justify committing money for decades.”
“So let me summarise. It is not a problem of financiers not wanting to put the money in, or a lack of liquidity. It is the wrong incentives from the public [voters] – and the wrong legal frameworks for funding infrastructure – that make it very difficult in practice.” (25min.)
Mr Bäte was right to be anxious. Governments are elected and elected governments change their policies. The UK government is one of them. A week after the COP21 ‘landmark deal in Paris’, Britain cut more RE subsidies.
Folk still sceptical about the UN’s climate-caliphate ambitions should reflect on Mr Steiner’s closing remarks.
Financial assets of the global banking sector alone amount to USD135 trillion. Institutional investors represent somewhere in excess of another USD100 trillion – just to give you a sense of the magnitude here. This is why what Allianz and the other PDC members are trying to get others to recognise that you can invest public finance in an alternative pathway.
But if the mainstream financial system – which is 1,000 times more significant in terms of volume and scale is investing in the other direction, you are not going to see the kind of shifts [that UNEP and the UN want]. This is why what we are now seeing in the financial and insurance world is so significant – because it reinforces what Paris COP21 is trying to do with public policy and international co-operative instruments”. (23.50min.)
According to the panel, annual global investment of USD1 trillion in RE infrastructure was ‘doable’. In calendar 2014 it was USD270 billion. China claims it alone will be investing USD300 billion annually from 2016.
Mr Steiner was just warming up. Later on the 7 December he gave a stirring speech to the Sustainable Innovation Forum, Why not?
Ladies and gentlemen, if you want to see what sustainable innovation has to offer, take a look at the new Clean Voyage2, which spells out the need to shift from a linear economy that extracts, consumes and discards to low-carbon and resource-efficient growth and from subsidizing [fossil] fuels to accelerating clean renewable energy and improving efficiency. If we can use such innovation to deliver a healthy planet, with a healthy population that leaves nobody behind - why not?
Why not? As The Australian’s Graham Lloyd noted (11 December), COP21 resembled ‘a seductive echo-chamber where the political lessons of high electricity prices, failed government subsidy programs, major renewable energy company bankruptcies don’t seem to cut through the groundswell of good feelings for change.”
There was a belief that, “like a Magic Pudding”, COP21 would “release economic forces to rival the Industrial Revolution, liberate continents from poverty, increase food security and right historical wrongs.”
If eco-love was in the air in Paris, so was the scent of other people’s money. On 10 December, the Geneva-based UNEP FI, Washington-based World Resources Institute and 2Degrees Investing Initiative released a new report outlining ‘options for portfolio decarbonization - across asset classes, investor strategies, and metric families’: Climate Strategies and Metrics: Exploring Options for Institutional Investors. Investors keen to ‘help facilitate low-carbon change’ would find it a useful guide.
The report’s ‘core concept’ – according to the 2DegreesII website – is that institutional investors, banks, and financial service providers play “a key role in capital reallocation in line with 2°C climate goals. We call this mobilization and the related changes in investment frameworks ‘2° investing’.”
The 81-page document – compiled by 106 ‘technical working group members’ (page 80) – is designed to persuade institutional investors and money managers to restructure portfolios, embrace ‘climate friendliness’ and commit to lowering ‘carbon risk’. Yet again nowhere in it is there a critique of the current state of climate science – or even a footnote on the areas of continuing controversy, such as model predictive claims, ex post facto EWE attribution studies and so on.
Climate friendliness: the intent of an investor to contribute to GHG emissions reductions and the transition to a low-carbon economy through investment activities.
There are two lessons here. If you hear a banker or fund manager claiming to be a global ‘climate-protector’ and pleading for an ‘ambitious and reliable regulatory environment’ - especially one with big bucks already invested in RE - hold on to your wallet. A carbon tax may be about to rise from the crypt and head you way.
If you are a financial-type – especially one employed by a PDC signatory - ask the company’s corporate lawyer to review your fiduciary duties. Be serious, too, about due diligence going forward. Better to be safe than sorry.
The planet’s future climate may – or may not – turn out be an insoluble mystery, but one thing is certain. Sooner or later, the wheels will come off Clean Voyage 2 (or 1.5). For climate-$$-change is shaping up as the greatest boondoggle in history.